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Credit Cards

Volume 164: debated on Thursday 21 December 1989

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To ask the Secretary of State for Trade and Industry whether he intends to abolish the no discrimination rule imposed by credit card companies in the light of the Monopolies and Mergers report; and if he will make a statement.

On 22 August, I published the report by the Monopolies and Mergers Commission on the supply of credit card services in the United Kingdom. I announced that I would welcome the views of all interested parties on the MMC's recommendation to end the "no discrimination" rule in the United Kingdom. Under this rule, imposed by the credit card companies, traders are required to charge the same price for purchases made with Visa or Mastercard/Eurocard (which includes Access) credit cards as for those paid for by cash or other means.I have received representations on this issue from a wide range of people including members of the credit card organisations, retailers and the general public. I have considered carefully, the views they expressed. In accordance with the advice of the Director General of Fair Trading, I have concluded that the no discrimination rule is anti-competitive. It restricts the freedom of retailers to set their own prices. This is a serious restriction on competition. Credit card purchases amounted to over £16 billion last year. Therefore I have decided that the rule should be brought to an end. I am asking the Director General of Fair Trading to seek the necessary undertakings. In the meantime, application of the rule remains a matter for the credit card companies.The effect of ending the rule will be to give retailers the freedom to choose whether or not to charge the same whether payment is made by credit card or cash. It will be for retailers to decide whether to offer different prices. They will not be obliged to do so. I intend, subject to the statutory consultation procedures, to bring in regulations under the Consumer Protection Act 1987 to require that any price indication makes clear whether differential pricing applies.Whether retailers find it attractive to take advantage of this new freedom will depend in part on the charges they themselves pay to the credit card companies. The MMC concluded that the level of profitability of five credit card companies accounting for some 80 per cent. of credit card lending last year was sufficiently above that which might have been expected in conditions of normal competition to be against the public interest. The MMC did not make any specific recommendations because of the prospect of increased competition. However, during the recent consultation period, considerable concern was expressed about the charges to retailers, including the interchange fee.I have therefore decided to go further than the MMC recommended by taking steps to increase competition in this area. Credit card companies will have to provide the Director General of Fair Trading with information on the range of charges to retailers and the interchange fees which they have been making and to publish similar information on their current charges. As well as enabling the director general to keep the position under review, this should act as a spur to competition and should strengthen retailers' ability to negotiate the level of charges with them. I intend to discuss these additional remedies with the credit card organisations and their members before initiating the statutory consultation procedure that is required before making orders under the Fair Trading Act.I announced last autumn that I was accepting the Commission's recommendation that the two credit card organisations, Visa and Mastercard-Eurocard should no longer restrict the freedom of issuers of their cards in the United Kingdom to act as merchant acquirers, recruiting traders to take credit cards and handling the subsequent transactions. The Director General of Fair Trading is seeking appropriate undertakings from these organisations. These measures in combination with increasing competition should remedy the adverse effects identified by the Commission in its report. Nevertheless, with the Director General of Fair Trading, I will watch developments closely. If necessary, I will consider taking further action.

To ask the Secretary of State for Trade and Industry if he will make a statement indicating his preferred option for insurance cover connected with the use of credit cards in the retail sector.

[holding answer 19 December 1989]: In August my Department issued a consultation document which proposed that where credit payment insurance and other ancillary services are offered as optional additions under a credit agreement, acceptance of the option should require a positive expression of acceptance by the borrower, such as the ticking of a box. A number of representations on this proposal have been received and are now under consideration.